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I am a maintainer of dosbox-staging project, which is licensed using GPLv2+. I am considering bundling DOS/32A with my project (as it greatly helps with the emulation of old DOS software).

DOS32/A is definitely open source, it's also considered "free" by many sources, but it uses a license with certain limitations:

Copyright (C) 1996-2006 by Narech K. All rights reserved.

Redistribution and use in source and binary forms, with or without modification, are permitted provided that the following conditions are met:

  1. Redistributions of source code must retain the above copyright notice, this list of conditions and the following disclaimer.

  2. Redistributions in binary form must reproduce the above copyright notice, this list of conditions and the following disclaimer in the documentation and/or other materials provided with the distribution.

  3. The end-user documentation included with the redistribution, if any, must include the following acknowledgment:

    "This product uses DOS/32 Advanced DOS Extender technology."
    

    Alternately, this acknowledgment may appear in the software itself, if and wherever such third-party acknowledgments normally appear.

  4. Products derived from this software may not be called "DOS/32A" or "DOS/32 Advanced".

THIS SOFTWARE AND DOCUMENTATION IS PROVIDED "AS IS" (etc, etc…)

These limitations are clearly designed to prevent misrepresentation in derived software, but from POV of strict license adherence, they give me a pause.

I think I have the following options available to me:

  1. Just bundle it, make changes required by points 1-3 and keep using GPLv2+ - it's not a problem.
  2. Same as (1), but add a new condition to GPLv2 about respecting DOS/32A license
  3. Switch to GPLv3 (I would prefer not to, but I can if I must), and use GPLv3 section 7 to put a limitation (b) and (c) in place to preserve DOS32/A restrictions
  4. Some other option I haven't thought off?

What is the best course of action in this case?

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As I understand it, this is mere use together of the two separate pieces by the recipient of your package (you talk about "bundling" because it helps -- i.e., isn't really essential). As such, this is mere aggregation as GPLv2 understands it, and you are in the clear. Just keep both pieces apart, state clearly what is what, where each piece comes from, and the respective licenses.

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